Financial Risk Manager Part 1
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A newly hired fixed-income dealer at a major bank that specializes in dealing sovereign bonds from various countries is tasked with understanding the differences between sovereign bonds denominated in foreign currencies versus those in local currencies. Specifically, the dealer is investigating how these differences impact the risk of default and the perception of these bonds by investors. What would the dealer find to be true in this analysis?
A
A country's foreign currency debt rating is typically higher than its local currency debt rating.
B
Investors in foreign currency sovereign bonds typically lose the entire value of their investment upon a country's default, whereas investors in local currency bonds do not.
C
Debt issued in foreign currency is usually sold to investors based in the issuing country.
D
Printing money to pay its local currency debt can be useful for a country in the short term, but can result in serious economic consequences in the long term.